How to stabilize nongroup insurance markets in four easy steps

With the vote taken in the early hours of July 28, 2017, Congress appears to be moving on from its effort to repeal and replace the Affordable Care Act (ACA), but the need for urgent policy action remains. Insurers’ final premium rate filings are due in just weeks, and insurer contracts must be signed in mid-September, yet insurance Marketplaces remain at serious risk of instability. Many insurers have requested large increases in premiums and some have threatened to leave the nongroup markets in 2018.

Some people may blame fundamental characteristics of the ACA for this instability, others may blame recent administrative actions and legislative uncertainty, and others some combination of these; nevertheless, there are straightforward, low cost ways to address these problems.

Nongroup markets can be improved enormously with these four steps, which would require only a modest federal investment and which a broad array of policymakers across the political spectrum would find acceptable.

1. Commit to paying the cost-sharing reductions.

The single reason most insurers cite for withdrawing from marketplaces (or for requesting higher premiums to continue participating in marketplaces) is the uncertainty over whether the federal government will reimburse them for cost-sharing subsidies.

People with incomes below 250 percent of the federal poverty level who are eligible for premium tax credits in the marketplaces are also eligible for subsidies to lower deductibles, co-payments, coinsurance, and out-of-pocket maximums. The lower a family’s income, the greater the extra help.

Insurers are legally obligated to pay these subsidies to eligible enrollees, whether or not the federal government reimburses the insurers for them. A lawsuit filed by the House of Representatives against the Obama administration remains in place, claiming that these payments were not appropriated and therefore should not be paid out to insurers. The Obama administration countered that congressional action was not necessary for the payments to be made.

By committing to paying these federal obligations, Congress would take a major, necessary step to stabilizing the private nongroup markets for the people who depend on them for coverage.

2. Reinstitute a reinsurance program.

Reinsurance provides payments to private nongroup insurers that enroll people with very high claims costs. If an enrollee’s costs exceed a specified level, the plan receives a payment from the reinsurance fund, usually a percentage of the enrollee’s excess costs, up to a cap.

This type of program is designed to address the problem of insurance markets (as a whole) enrolling a disproportionate share of people with very high medical costs. Reinsurance was a temporary part of the ACA (for the first three years), but it is a permanent part of the Medicare Advantage program. Reinsurance was also included as a longer-term program in the recent House and Senate repeal-and-replace bills, and the Trump administration has approved a reinsurance program for Alaska under a section 1332 waiver.

If made a permanent feature of the ACA, reinsurance would bring down nongroup market premiums, boost insurer confidence, and likely increase insurer participation.

3. Continue to enforce the individual mandate in current law.

The Trump Administration has signaled it does not intend to enforce the individual mandate—the penalty faced by some people who remain uninsured. While unpopular, the individual mandate is the law, and to this point, no better alternative has been proposed or enacted.

The purpose of the individual mandate is twofold:

It brings healthier people into the insurance pool who might otherwise remain uninsured.

It keeps healthier people in the pool who might leave because of the rules that led to a broader sharing of health care costs between the healthy and the sick.

Without the mandate, the number of insured people would fall, and the average health care costs of people still in the insurance pool would be higher, increasing premiums. So, refusing to enforce the mandate will not only decrease insurance coverage, it can also destabilize insurance pools in the private nongroup market.

4. Finance outreach and enrollment assistance.

The ACA’s navigator program was designed to help people become aware of new coverage and subsidy options and to make it easier for people to enroll by providing trained, in-person assisters in every state.

Not only does coverage increase when more people enroll, but outreach and enrollment assistance tends to bring more healthy people into the insurance pool. Many of these are people who would not necessarily enroll on their own because they do not have health problems to worry about.

Again, enrolling more healthy people leads to more stable and lower average cost insurance pools. The Trump administration is defunding Navigator programs, which will undoubtedly lead to more uninsured people and higher average health care costs in the insurance pools.

Funding outreach and enrollment assistance provides the federal government a big bang for the buck. It brings in many more insured at a relatively small cost. Having a strong, functioning navigator program is invaluable to creating strong insurance environments and reducing the number of uninsured.

From strategy to action

Taken together, these provisions would be low cost in the context of the federal budget and health care spending and would ensure that many people continue to receive the coverage they have today. As we have written elsewhere, several other policy changes could address issues of affordability and high premiums, the latter resulting from lack of competition in some insurer and provider markets.

We do not repeat those recommendations here. Other improvements can be made over time, given political will to do so. However, legislators taking these four basic steps could be comfortable knowing that they had acted responsibly in divisive political times to ensure the availability of adequate and affordable insurance plans across the country in 2018.